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Questions tagged [returns]

The asset rate of returns is the profit on a particular investment; it includes any change in the asset value, interest, commission or dividends and so, all other cash-flows which an investors receive or pays due to the investment.

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4
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1answer
206 views

Is positive skewness preferences rational or irrational?

Is positive skewness preference rational or irrational? I have a great trouble understanding why investors should prefer positive skewness over negative one. Sometimes it is argued that preference ...
4
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1answer
108 views

Is the Fama-French website data free of the serious selection bias pre-1962 where it's tilted toward big historically successful firms?

Fama and French use data starting in 1963 in both 1) "Common risk factors in the returns on stocks and bonds" (1993) and 2) "The cross-section of expected stock returns" (1992) and mention in (2) ...
4
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2answers
115 views

Does heteroskedasticity of returns depend on the time frame?

Similarly to my last question, for which I obtained very interesting and useful answers, I would like to know if there has been any study regarding heteroskedasticity and time-frames of the returns. ...
4
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2answers
26k views

How to calculate equally weighted market portfolio

There's two studies that test the same thing in different markets (i.e. they apply the identical methodology). They state: 1) "$R_{mt}$ is the equally weighted average stock return in the dual-listed ...
4
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1answer
134 views

Returns and Factors for European Market Kenneth French Database

I am planning to estimate Fama-French model for mutual funds with European equity scope. I am thinking about using the European factors from Kenneth French database, which are computed in USD. The ...
4
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1answer
166 views

relationship between volatility and equity premium

I am working on the equity premium. Does anybody know one or two authors who address the relationship between volatility and equity premium? I.e. how does vola influence the equity premium? In ...
4
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2answers
3k views

Fama French & Solving for Alpha

This is a question about comparing results from the Fama french 3 factor model. I have not physically done this, but let's assume a Fama French 3 factor regression was performed for Coca-Cola (KO) ...
4
votes
1answer
176 views

Comparing a money-weighted return of my own portfolio with a benchmark ETF/other portfolio that is subject to the same cashflows

I am able to calculate the money-weighted return (XIRR equivalent in Excel) of my portfolio. Whilst I can compare this with ‘headline’ returns of ETF’s, Mutual Funds etc, I want to isolate the timing ...
4
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1answer
149 views

How does RAROC identify capital requirements?

I've read that RAROC is used to set economic capital requirements for different products, projects, business lines etc. Is it just a matter of solving for the required economic capital level to ...
4
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0answers
2k views

Carry Trade vs synthetic Carry Trade using forward contracts

When it comes to foreign exchange carry trade strategy, the definition is straightforward: an investor borrows 1 US-\$ in the US (low interest country) and invests that \$1 to AU (high interest ...
4
votes
1answer
860 views

How to download risk free rate?

I've been trying to download the national interest rates for some countries. When i use Datastream, it only gives me the currency return (while i need yield). Can someone please tell how to ...
3
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3answers
2k views

Computing Pooled IRR from the IRRs of parts

Suppose I have two cash flows: CF1: -10001001001100 CF2: -20020301 I can compute now: IRR(CF1) = 10% IRR(CF2) =-55% IRR(CF1+CF2) = 4.46% Is there a way to compute (or at least get a fair estimate) ...
3
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4answers
147 views

CAPM - Expected vs. actual returns

I'm trying to calculate alpha in excess of CAPM and have seen a few slightly different calculations for CAPM. The primary difference I am seeing is that some equations use expected market returns (e....
3
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3answers
672 views

Risk-adjusted returns ratio that does not reward high risk for negative returns

Think of Sharpe ratio, Treynor ratio, or anything where (excess) returns $r$ are divided by something that represents risk, $\sigma$: $$\mathrm{performance} = \frac{r}{\sigma}$$ If the returns are ...
3
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2answers
622 views

When gains are made: Overnight or during trading hours? What is the connection to volatility?

Falkenblog reports an interesting finding: All of the stock returns since 1993 are from overnight returns and cross-sectionally, volatility receives a positive overnight risk premium, a negative ...
3
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2answers
219 views

Have any other factor “styles” which explain equity returns been uncovered?

I know this is an inherently broad question, so I will attempt to clarify what I mean by factor "styles". I am not looking for a compendium of "anomalies", per se, but rather for categorical themes ...
3
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3answers
2k views

How to model the daily return using intraday data?

Say, I have hourly returns $r_1,r_2,...,r_T$, where $r_t$ = $ln(p_t)$ - $ln(p_0)$ for $t = 1...T$. So what is the value of $E[r_t]$? Would $r_T$ be the $\prod{(r_t)}$? Basically $r_t$s are the ...
3
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1answer
98 views

Proof that linear returns aggregate across securities

I keep reading that linear returns aggregate across securities, but I'm having trouble proving it. I suspect there's some mistake in my approach; I'd appreciate some help in seeing it. Suppose we ...
3
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1answer
218 views

On an application of Ito's lemma

Assume that instantaneous returns are generated by the continuous time martingale: $$dp_t = \sigma_t dW_t$$ where $W_t$ denotes a standard Weiner process and One day returns are denoted by $r_{t+1} =...
3
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1answer
275 views

What is the relationship between arithmetic versus geometric averages and simple versus logarithmic prices?

I know that the geometric mean is used in order to make percentage returns across time comparable. Similarly, I know that log prices make percentage returns comparable for example when prices are ...
3
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3answers
597 views

Interpretation of t-test in event study with dummy regression

I am not sure about my interpretation of the t-ratios in dummy regression models for event studies. I have the results for two different groups of models examining the impact of news on stock returns ...
3
votes
2answers
154 views

Distribution of simple returns vs logreturns

I understand that stock prices are conditionally modeled using a log normal distribution by the relationship $ y_t/y_{t−1}∼logN(μ_{daily},σ^2_{daily})$ $y_t∼logN(log(y_{t-1})+μ_{daily},σ^2_{...
3
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1answer
540 views

Portfolio forward return

I am working on a project which needs to find portfolio return for the next m months. To begin, let say investor hold a portfolio of $N$ stocks with weight $w_i$ invested in stock $i$, what is the ...
3
votes
1answer
113 views

How consequential are violations of the efficient diversification assumption of asset pricing models?

When using asset pricing models such as the CAPM or the Fama-French four factor model to determine the risk-adjusted return of a portfolio, does this strictly require efficient diversification of the ...
3
votes
1answer
232 views

Estimating Beta from unevenly spaced price history

I have a certain non-stock asset that has 1 transaction every 1 to 8 months. I also have a price index of that class of asset compiled by another party on monthly basis. If I regress $price = \alpha' +...
3
votes
1answer
2k views

How to estimate market integration parameter in Singer-Terhaar model for E(r)?

Singer-Terhaar is part of CFA II and III curriculum. It estimates risk premium for some asset, traded at some local market, as weighted average of expected premiums for the case of (1) local market, ...
3
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2answers
382 views

Estimation Risk-Neutral Variance of Returns

I am trying to find a method which allows me to estimate $Var_{\mathbb{Q}}\left(\frac{S_{t_{i+1}}}{S_{t_i}}\right)$ where $S$ denotes the price process of an underlying stock (which has to be assumed ...
3
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2answers
2k views

Calculating and interpreting cumulative returns is R

I have buy and sell signals,and accordingly, I artificially generate a signal series,for which,I assign 1 to every buy and -1 to every sell: ...
3
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3answers
2k views

Portfolio software that shows 'total return' for each investment

I'm a high school technology teacher and sponsor for the Charity Student Investment Project. Currently our students track our investment portfolio via a google spreadsheet (http://...
3
votes
1answer
84 views

Accounting for Withdrawals

I am trying to wrap my head around the proper way to do this. I would like to simulate the portfolio value adjusted for inflation with a fixed withdrawal rate. To simulate withdrawal rate, I will ...
3
votes
0answers
315 views

Regressing non-USD returns on FF 3-factor returns

I am analysing some portfolio returns from the perspective of a Danish investor, i.e. in the local currency, DKK. I want to regress portfolio returns in DKK on the returns of a 3 factor Fama & ...
3
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0answers
40 views

Polynomial interpolation of corrected lognormal distribution

Can anyone provide a formula for a polynomial interpolation of the corrected lognormal distribution used to model returns traditionally resulting from the wrong Brownian motion generated model? ...
3
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0answers
595 views

Modelling log-returns and calculating the portfolio return

I know this might be a trivial question, however, I would be grateful for some clarification. I am working on weekly log-return data, doing volatility-foracasting using GARCH models and then using ...
3
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1answer
680 views

Comparing the return of different roll strategies

I am interested in calculating the effect of the roll return using different roll strategies. In specific I want to mimic a long-only futures investments. I have historical data for several ...
3
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0answers
338 views

Correlation between idiosyncratic residuals and forward returns

The classic mean-reversion strategy is to calculate an "expected return" (alpha) by computing the raw return for each security and then remove the part which you think is market driven. Statistically ...
2
votes
3answers
260 views

If markets are efficient, why are most returns systematically high?

Suppose markets are perfectly efficient and asset prices reflect all available information. Under this assumption one expects current prices to be non-biased estimators of future prices. It seems to ...
2
votes
2answers
90 views

How to calculate necessary gain to compensate a loss in a financial transaction?

(Feel free to suggest the correct Stackexchange community - or otherwise - if this is not the correct one) When trading financial markets, a gain of x%, won't ...
2
votes
2answers
2k views

Calculating Momentum From Returns

I am doing some modelling and have some data: ...
2
votes
4answers
502 views

How to interpret regression coefficients with dummy explanatory variables?

I am a bit confused about the interpretation of the regression coefficients in a regression model: $R_{t}=\beta_0+\beta_1R_{mt}+\beta_2D_{t}+\epsilon_t$ where $R_{t}$ is the log return of some stock,...
2
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2answers
387 views

Sharpe ratio: discrete or continuous returns?

The Sharpe ratio is known as $$SR=\frac{\mu-r_f}{\sigma}$$ Are these values calculated from discrete or continuously compounded returns?
2
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1answer
92 views

Geometric Returns values less than -100%

I am trying to find the geometric return for semi-annual log-returns in Excel. However, I do not know how to handle values less than -100%.... ...
2
votes
1answer
874 views

Total Return Swaps and Borrow Cost Relationship

If an investor is long a Total Return Swap (TRS), they get the total return (ie, including dividend) performance and usually pay LIBOR minus a spread. This spread should trade ...
2
votes
2answers
94 views

s&p500 companies value vs growth

I was thinking of examining how the constituent companies of the s&p500 are affected by sentiment in crises. Is there any way to download stock prices for all the companies? Moreover how can I ...
2
votes
1answer
578 views

R: Calculating cumulative return of a portfolio

I've downloaded adjusted closing prices from Yahoo using the quantmod-package, and used that to create a portfolio consisting of 50% ...
2
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2answers
98 views

Calculating excess returns

I would like to know if I am calculating these excess returns correctly. I have here an R dataframe with weekly 3-month treasury bill rates, and the arithmetic ...
2
votes
1answer
5k views

how to chain monthly excess returns into annual?

I want to calculate annual excess returns on portfolios using monthly returns for a CAPM (for the assets in the portfolio as well as for the benchmark), in order to have more information on the ...
2
votes
2answers
433 views

Block Bootstrapping Relative Returns

I want to run a block bootstrap on the relative returns, but I'm not sure if subtracting the mean is important. A bootstrap sequence is a synthetic sequence generated using the original sequence. If ...
2
votes
1answer
217 views

How to deal with different amount of td's in computing Sharpe Ratio

In calculating the Sharpe Ratio, should I take into account the days were I have 0 return due to non-trading day? Another user posted a similar question but this was related to trading days with no ...
2
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1answer
232 views

How to group mutual funds by volatility?

I want to group Mutual Funds by their volatility. Ideally, I would like to end up with the mutual funds beings attached to different groups: High volatility Medium volatility Low Volatility My ...
2
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1answer
29 views

Does Adjusted Closing Price take account the Expense Ratio?

first time posting at Quantitative Finance. I am trying to use the yfinance python library to load various ETF's data and compared the return. I understand the adjusted closing price handles the ...